gregory latta, darius adams and sara ohrel
DESCRIPTION
Simulated effects mandatory versus voluntary participation in private forest carbon offset markets in the United States. Gregory Latta, Darius Adams and Sara Ohrel Oregon State University and US Environmental Protection Agency. FASOM Model Collaborators . Texas A&M Bruce McCarl - PowerPoint PPT PresentationTRANSCRIPT
Simulated effects mandatory versus voluntary participation in private forest carbon offset markets in the United States
Gregory Latta, Darius Adams and Sara OhrelOregon State University and US Environmental
Protection Agency
Texas A&MBruce McCarlJerry Cornforth
Nicholas Institute, Duke Brian MurrayJustin Baker
Oregon State UniversityEric White
FASOM Model Collaborators
USDARalph AligWilliam HohensteinJan LewandrowskiRob Johansson
EPRISteven Rose
RTI InternationalRobert Beach
Brief Overview of FASOM modelRecent carbon market developments
Regulatory (HR2454, S1733, RGGI, AB32)Voluntary (CAR, VCS, ACR)
Modeling carbon markets in a voluntary contextResults from our first attempt
Issues and challenges in modeling a voluntary policyBaseline, additionality and leakage
A second modeling attemptConclusion
Modeling the Carbon Offset Market
4
FOREST AND AGRICULTURE SECTOR OPTIMIZATION MODEL with GREENHOUSE GASES (FASOM-GHG)
FOREST SECTOR MARKETS AND FOREST LAND BASE: INVENTORY SILVICULTURAL REGIME ROTATION FOREST TYPE MANUFACTURING
AGRICULTURE SECTOR MARKETS AND AG LAND BASE: CROPPING TILLAGE METHODS LIVESTOCK
ENERGY SECTOR FEEDSTOCK MARKETS
LAND USE CHANGES
FLOWS OF FEEDSTOCKS
FOR BIOENERGY AND ETHANOL
COMMODITIES (ENDOGENOUS) SOFTWOOD LUMBER, HARDWOOD LUMBER, SOFTWOOD
PLYWOOD, OSB PAPER PRODUCTS (14), MARKET PULP (4), RECYCLED NATIONAL DEMAND FOR EACH COMMODITY REGIONAL AND IMPORT SUPPLIES
PRODUCTION PROCESSES (PULP AND PAPER) ALTERNATIVE FIBER MIXES ALTERNATIVE TECHNOLOGIES (PULPING AND PRESSES)
TIMBER INVENTORY DATED FROM ca 2000 TIMBER GROWTH
MANAGEMENT CLASSES (11 IN SOUTH, 5 IN PNWW, 2 ELSEWHERE)
FOREST TYPES (6 IN SOUTH, 3 IN PNWW, 2 ELSEWHERE) PARTIAL CUTTING
SILVICULTURAL AND LAND CONVERSION COSTS
Elements of FASOM Forest Sector
Policy BackgroundUS Greenhouse Gas Emissions
From: (EPA 430-R-11-005) Inventory of U.S. Greenhouse Gas Emissions and Sinks:1990 – 2009http://www.epa.gov/climatechange/emissions/downloads11/US-GHG-Inventory-2011-Complete_Report.pdf
The Emissions Cap
http://www.epa.gov/climatechange/economics/pdfs/EPA_S1733_Analysis.pdf http://www.arb.ca.gov/cc/capandtrade/meetings/121409/capcalc.xls
Federal
Regional(California)
http://www.epa.gov/climatechange/downloads/s2191_EPA_Analysis.pdf
Figure 1: Total Domestic Forest and Agriculture Offset MACs for constant (a) and rising (b) prices (avg MtCO2e yr-1)
$-
$10
$20
$30
$40
$50
0 200 400 600 800 1000
MtCO2e/yr
$/tC
O2e
2010
2020
2030
2040
2050
$-
$50
$100
$150
$200
$250
0 250 500 750 1000 1250 1500MtCO2e/yr
$/tC
O2e
20102020203020402050
(a) (b)
The End Goal – Domestic offsets (FASOM)
U.S. EPA, 2009. Updated Forestry and Agriculture Marginal Abatement Cost Curves. Memorandum to John Conti, EIA, March 31, 2009.
Putting It Together - HR2454 Analysis
Putting It Together - HR2454 Analysis
The Fallout
One Way is to:Model Cap and Trade in a Voluntary Offset Context
Forest sector not “capped”Sell offsets as carbon sequestered or emissions avoided
So How Can We Improve?
Make enrollment in the market VoluntaryLand in the model would have to “opt in”
Land that does not “opt in” will have no control on emissions levels (no penalty)
Require a 100 year commitmentAddresses permanence (makes model smaller
as well)
Include harvested wood product carbon
Modeling a Voluntary Carbon Offset Market
Forestry Marginal Abatement Cost Curves
Ever Increasing Marginal Cost Curve
FROM: Estimates of Carbon Mitigation Potential from Agricultural and Forestry ActivitiesCongressional Research Service, 7-5700, www.crs.gov, R40236
Notes: EPA 2005 = EPA, Greenhouse Gas Mitigation Potential in U.S. Forestry and Agriculture, November 2005. ERS 2004 = USDA, Economics of Sequestering Carbon in the U.S. Agricultural Sector, Apr. 2004. MS 2001 = Bruce A. McCarl and Uwe A. Schneider, “Greenhouse Gas Mitigation in U.S. Agriculture and Forestry,” Science, vol. 294 (December 21, 2001), pp. 2481–2482. R 1997 = Kenneth R. Richards, Estimating Costs of Carbon Sequestration for a United States Greenhouse Gas Policy (Boston: Charles River Associates, 1997). MR 1990 = Robert J. Moulton and Kenneth R. Richards, Costs of Sequestering Carbon Through Tree Planting and Forest Management in the United States, General Technical Report WO-58 (USDA, Forest Service, 1990).
Land Movement Between Forest and Agriculture
Negative value indicates net deforestation
Positive value indicates net afforestation
Price Period CB GP LS NE RM PSW PNWW PNWE SC SE Total0 2010-2030 -783 0 -1,877 -179 -2 0 0 -13 -2,242 -1,658 -6,75315 2010-2030 -783 0 -1,877 918 1,700 400 0 187 -865 -921 -1,24230 2010-2030 267 0 -1,873 3,849 1,700 400 0 187 4,295 -910 7,915
Price Period CB GP LS NE RM PSW PNWW PNWE SC SE Total0 2010-2030 -783 0 -1,877 -179 -2 0 0 -13 -2,242 -1,658 -6,75315 2010-2030 -606 0 -882 3,862 1,300 303 0 185 2,698 -79 6,78030 2010-2030 3,278 0 350 5,162 1,800 303 0 192 13,185 3,638 27,907
Voluntary
Mandatory
Product Price Impacts
300
320
340
360
380
400
420
440
2000 2010 2020 2030
$/m
bf
US Softwood Lumber Price
$0 CO2e
$15 Mandatory
$30 Mandatory
$15 Voluntary
$30 Voluntary
Modeling We need to pay attention to model users needs How we structure the policy in the model is important
Results marginal cost curves of C are steeper in voluntary market--as some
previous econometric studies have suggested optional offset sales entry leads to fewer acres of afforestation and
less response from management of existing forests prices effects in traditional products markets are notable and
exaggerated when C prices rise and are especially wide in a mandatory offset scheme
First Modeling Attempt Conclusion
Latta, G., D. Adams, R. Alig and E. White. 2011. Simulated effects of mandatory versus voluntary participation in private forest carbon offset markets in the United States. Journal Forest Economics 17(2): 127-141.
Baseline In mandatory market model baseline doesn’t matter In voluntary market model it does
Why? Mandatory
Every change in carbon stocks will be accounted for in the optimization
Voluntary Baseline drives the decision of whether you want changes in carbon stocks
accounted for in the objective function.
Baseline is now important in policy effectiveness modeling
Issues and Challenges in modeling a voluntary policy
Issues and Challenges in modeling a voluntary policy
A breakdown of the offset supply curve from Latta etal. 2011 by enrollment
First ThoughtsGiven that
• A is the quantity of offsets available• Annual flux on enrolled lands
And
• B is the net forest sequestration• Annual flux on all lands
Therefore
• C is the quantity of leakage• Annual flux on non-enrolled lands
AC
B
Issues and Challenges in modeling a voluntary policy
A breakdown of the offset supply curve from Latta etal. 2011 by enrollment
Next ThoughtsGiven that
• A is the quantity of offsets available• Annual flux on enrolled lands
And
• B is the net forest sequestration• Annual flux on all lands
Therefore
• C is the quantity of non-additional CO2e• Annual flux on non-enrolled lands
ACB
Good
Guys
Issues and Challenges in modeling a voluntary policy
Why low, or no leakage? MoreThoughts• In the $0 run
• there are Good Guys (land sequestering C)• and Bad Guys (land emitting C)
• Given that it is a model based on optimality a small change in C price sorts out the good and bad guys
• Given the policy design, you are paid (or pay) for your C flux at each point in time.• If you are a Bad Guy (opting out)• And want to be a Good guy (opt in)• You must improve your C flux all the way to zero before you
begin to get paid.
• Also, these are aggregate amounts• fewer “opt out” acres = more emissions per acre
Bad Guy
s
Good
Guys
Bad Guy
s
Bad Guy
s
Bad Guy
s
Bad Guy
s
Bad Guy
s
Bad Guy
s
GoalsMinimize additionality issuesMinimize leakage issuesEliminate baselineA simple effective policy
MethodsUse forest sector model only
Pay for only tree and harvested wood carbonAbove, but on existing forest only when past minimum
harvest age (X)Above, but only when past minimum harvest on existing
and regenerated forests (XN)
A Second Modeling Attempt
Results With Forest Sector Only
Pay for only tree and harvested wood carbonAbove, but on existing forest only when past minimum harvest ageAbove, but only when past minimum harvest on existing and regenerated forests
Results With Forest Sector OnlyFlux on existing stands only when greater than minimum harvest age
Text here
Results With Forest Sector OnlyFlux only when greater than minimum harvest age
Text here
Results With Forest Sector Only
C_Total – all forest accounts
C_In – Enrolled land onlyFO – C payments for tree
and HWP C onlyX – no payments on
existing stands unless > minimum harvest age
N - no payments on existing and regenerated stands unless > minimum harvest age
A third (future) modeling attempt?Use what was learned prior runs and …Relax permanence restriction
Use stocking level instead of age as qualifier
Combine with voluntary agriculture model
Conclusion